Funding valuable failure

When it comes to investing, everyone understands the concept and the merits of diversification. However, when it comes to developing breakthrough innovations, it seems the benefits of diversification are not always understood.

Not all investments will yield great returns. Some will fail, and some will generate amazing returns. The same is true when it comes to creating breakthrough innovations.

Many organisations work really hard on developing a new product, service, business model, strategy or process that they believe will be a breakthrough for them. They then tend to go on developing it, assigning lots of resources (including funding) to continued development – and only when it is ‘perfect’ does the implementation phase start.

A much more effective approach to resourcing innovation is to adopt a micro-funding strategy. Rather than assigning lots of money to a small number of innovations, it is better to assign small amounts of money to a larger number of innovations – micro-funding.

Adopting micro-funding as an approach to innovation:

1. Allows for diversification
2. Encourages rapid prototyping
3. Avoids over-resourcing

These benefits are often features of great innovation success stories from start-ups, and interestingly are partly driven by the lack of resources usually synonymous with the ‘limitations’ of start-up organisations.

Larger organisations however, can fall victim to over-resourcing innovation to the detriment of diversity and input from the prototyping phase.

Some tips around funding innovation:

1. Assign only ‘seed’ funding to ideas until there have been significant learnings from prototyping.
2. Be prepared to seed fund a broad range of ideas. Diversify!
3. Don’t progress an innovation to the next ‘stage’ until there has been significant feedback from customers / users / people / groups at which the innovation is targeted.
4. Look at the prototyping process as a learning process, so don’t over-fund development throughout this stage.
5. Embrace the inevitable failures and adopt what you learn from them!